Study: Public pension funds in a dangerous race with one another. Should focus on liabilities first.
|Mar 24th, 2011 | Filed under: Academic Research, Institutional Investing, Today's Post | By: Alpha Male||
According to the U.S. Social Security Administration, America’s social security trust fund will run out of gas in the year 2041 (see table). That’s because the U.S. Social Security system is a pay-as-you-go scheme where current income pays most of current payments to retirees. One of the policy levers at the U.S. government’s disposal is to inflate their way out of this predicament by printing money for future retirees when the time comes.
But state and local pension plans enjoy no such privileges. The only source of income for state and local governments is, of course, taxes. That’s why nearly all state and local pension plans are pre-funded, not pay-as-you-go. Nobody wants to have to increase taxes to pay for unfunded pension commitments to municipal workers made years ago.
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